HVT - Haverty Furniture: Quarterly Results Will Be Telling

Summary

• HVT shares are back to hitting new 52-week highs, as investors continue to build positions.
• We think that 2023 is a year of moderation for HVT, which will be followed by 2024 and what should be strong revenue and EBITDA growth.
• When HVT does announce quarterly results, do not expect a dividend increase this month. That is typically announced (if any changes) during the next quarter's results.

Back in late November we wrote an article discussing taking profits in Haverty Furniture Companies (HVT) that investors should wait until after the ex-dividend date before doing so as it would entitle the owner of the company's shares to both the regular quarterly dividend as well as the special dividend that the company had announced. We thought it was a win as the company's shares had bounced back fairly quickly from a pullback that occurred in late Summer and into Fall and the dividend payments would only increase our total return.

While it was a nice trade and a good "win" to discuss near the end of the year, especially due to the outperformance vs. the benchmark and the large dividend flows, we recognize in hindsight that we left some money on the table. At the end of the day though a win is a win, and booking profits is not something which should be frowned upon.

Price Movement Since Then

Since we closed out the positions in the portfolios we control, the stock price has continued higher. In fact, Haverty shares have hit fresh 52-week highs in 2023, with the most recent new high occurring on Feb. 3. While we think that Haverty has a great story, very capable management team and solid balance sheet, we believe that the stock has now gotten ahead of itself. While we do believe that the stock is ultimately worth more than the current share price of roughly $36/share, in the current market of higher rates the drivers (real estate holdings and take private) for that thesis does not support the present move. If the economy does land softly and the Federal Reserve lowers rates in a meaningful way, then we do see multiple avenues for the shares to move higher.

However, in the interim, we believe that we will be able to purchase Haverty shares on a pullback as the price does seem rich at this point. We doubt that the upcoming quarterly results will result in a large move in either direction, but if shares do head lower we could see ourselves stepping up to the plate and redeploying capital back into the stock.

Earnings Coming Up

As we write, the company has not issued a press release stating when they will announce quarterly results - typically they put out a press release about a week before, so we should see a press release any day now as we're seeing some news sources show an estimated release date, or an unconfirmed release date, of Feb. 15.

We suspect that Haverty's earnings will be respectable with some of the main takeaways centering around abating cost pressures and the company's plans for growth in 2023 and beyond. The company has a warehouse (distribution center) project that has been in the works, and if they move forward with that project in Virginia it opens up new markets for them that will drive top and bottom line growth.

The Dividend

The dividend rate should remain steady at $0.28/share per quarter as this will be the fourth quarter at that rate. The company may revisit the dividend policy after next quarter, but based off of management's history, they will look to address any changes to the dividend policy after this quarter.

Also, there will not be a special dividend announced if the company holds to its typical game plan. Management (the board in this case) usually waits until close to the end of the calendar year to declare a special dividend. In fact, you have to go all the way back to 2014 to find a year where they announced a special dividend before November (with a distribution in early or mid-December). One important note is that the company has been doing special dividends each year lately when prior to COVID they were doing special dividends every other year - so that could very well be something to pay attention to on future conference calls or news releases because reverting back to that schedule would eliminate any hopes of having a special dividend payout.

Short Interest

Haverty's common stock currently has about 19.32% of its shares (floating) shorted. This is roughly 2.7 million shares and would take just over 25 days to cover based off of the company's recent average daily volume. While it's possible that a short-squeeze could occur, this name does not appear to be on anyone's list of a stock that could move sharply higher due to a low float and large short position. That can always change, but we think investors should first evaluate the company based off of the base investments thesis and then look at some of these peripheral-type issues that could potentially lead to large gains.

Final Thoughts

Regardless of what Haverty's shares do over the next week, we doubt that we would be buyers until after the company's conference call. The shares have gotten pretty rich and we do believe that there is at least one more decent-sized pullback left which might present a better buying opportunity. While we're missing out on the dividend by being on the sidelines, we believe there is little reason to get too excited about the dividend policy as we have laid out our reasoning for why investors only have to worry about that around next quarter's quarterly results.

We have a few clients who invest some of their funds individually and we will be getting in touch with them to recommend selling any remaining Haverty shares and booking the profits. We look forward to re-establishing positions in the furniture company but believe it might take some patience letting the stock come back to us. We think there's a good chance of this (the stock falling back into our purchase area) in 2023, which would be perfect as we think 2024 is going to be the year of growth for the company (assuming that the economy and jobs markets do not deflate quickly.

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